Retail sales increased 1.3% in October, beating expectations
Retail sales increased at a brisk 1.3% pace in October, topping estimates for a 1.0% increase. Core retail sales, excluding automobile and gasoline sales, expanded by a solid 0.9% for the month.
The message? Consumers are still spending; that’s the good news. The fact that too much of that spending is necessary just to maintain their living standard as inflation chews away at real purchasing power should dampen enthusiasm of how good that news really is.
A 4.1% surge in gas station sales illustrates that point, given higher gasoline prices. Nobody will point to that as a sign of consumer spending strength, as it saps potential discretionary spending elsewhere.
Sales growth over the past year also captures the point. In a different environment with stable prices, an 8.3% 12-month increase in sales would suggest strong real economic growth. But with the consumer price index up 7.8% within that same period, the year-on-year increase in retail sales looks much more tepid.
With labor conditions cooling and wage growth easing, how are consumers continuing to fuel spending? First, there are indications that the massive stockpile of cash accumulated during the pandemic is being chewed down. The personal savings rate dropped to 3.1% in September, very near the lowest rate since 2007. That could carry spending forward through inflationary headwinds for a while. On the whole, that’s not an option for lower-income households, who have already largely exhausted the stimulus payouts and are turning to credit to bridge the gap. Consumer credit expanded at a 6.8% annualized rate in the third quarter, but revolving credit (which includes credit cards) surged at a 12.9% annualized rate during that period.
In the near term, this bodes well for a solid holiday shopping season for retailers and may be particularly good news for traditional bricks-and-mortar stores that could benefit from increased traffic and less focus on social distancing than in the past few years. With measures of consumer sentiment still very low, households are likely to pare back their spending at some point. For now at least, that’s not the case.
The bottom line? Consumers are still spending, but flagging income growth isn’t driving consumption. Increasingly, households are tapping into savings and pulling out their credit cards to finance their spending habits. Either can provide a short-term bridge, but neither are long-term solutions.
Past performance does not guarantee future results. All investments include risk and have the potential for loss as well as gain.
Data sources for peer group comparisons, returns, and standard statistical data are provided by the sources referenced and are based on data obtained from recognized statistical services or other sources believed to be reliable. However, some or all of the information has not been verified prior to the analysis, and we do not make any representations as to its accuracy or completeness. Any analysis nonfactual in nature constitutes only current opinions, which are subject to change. Benchmarks or indices are included for information purposes only to reflect the current market environment; no index is a directly tradable investment. There may be instances when consultant opinions regarding any fundamental or quantitative analysis may not agree.
Plante Moran Financial Advisors (PMFA) publishes this update to convey general information about market conditions and not for the purpose of providing investment advice. Investment in any of the companies or sectors mentioned herein may not be appropriate for you. You should consult a representative from PMFA for investment advice regarding your own situation.